<PAGE>

                    U.S. SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                    FORM 10-Q

(Mark One)

[X]   QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934
      For the quarterly period ended September 30, 2000


[ ]   TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934
      For the transition period from ______ to ______

                        Commission File Number: 333-22895

                     ---------------------------------------

                                  BLUEFLY, INC.
        (Exact name of small business issuer as specified in its charter)

                New York                                13-3612110
     (State or other jurisdiction of       (I.R.S. Employer Identification No.)
     incorporation or organization)

    42 West 39th Street, New York, NY                      10018
(Address of principal executive offices)                (Zip Code)

                    Issuer's telephone number: (212) 944-8000

                     ---------------------------------------

Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]

As of November 9, 2000, the issuer had outstanding 4,924,906 shares of Common
Stock, $.01 par value.

Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]

<PAGE>

                                  BLUEFLY, INC.
                                TABLE OF CONTENTS

                                                                            PAGE
                                                                            ----

Part I.  Financial Information

Item 1.  Financial Statements

         Consolidated Balance Sheets as of September 30, 2000 (unaudited)
               and December 31, 1999                                          3

         Consolidated Statements of Operations for the nine months ended
               September 30, 2000 and 1999 (unaudited)                        4

         Consolidated Statements of Operations for the three months ended
               September 30, 2000 and 1999 (unaudited)                        5

         Consolidated Statements of Cash Flows for the nine months ended
               September 30, 2000 and 1999 (unaudited)                        6

         Notes to Consolidated Financial Statements                           8


Item 2.  Management's Discussion and Analysis of Financial Condition
         and Results of Operations                                            9

Part II. Other Information                                                   13

Item 2.  Changes in Securities and Use Of Proceeds                           13

Item 6.  Exhibits and Reports on Form 8-K                                    14

Signatures                                                                   15

<PAGE>

PART I - FINANCIAL INFORMATION
ITEM 1. - FINANCIAL STATEMENTS

                                  BLUEFLY, INC.
                           CONSOLIDATED BALANCE SHEETS
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                 SEPTEMBER 30,   DECEMBER 31,
                                                                     2000           1999
                                                                     ----           ----
<S>                                                              <C>             <C>
                            ASSETS
Current assets
    Cash                                                         $    906,000    $  7,934,000
    Inventories, net                                                7,934,000       7,020,000
    Accounts receivable                                               886,000         381,000
    Prepaid expenses                                                  763,000         212,000
    Other current assets                                              136,000         487,000
                                                                 ------------    ------------
        Total current assets                                       10,625,000      16,034,000

Property and equipment, net                                         1,294,000       1,037,000

Other assets                                                          150,000          38,000
                                                                 ------------    ------------
                                                                 $ 12,069,000    $ 17,109,000
                                                                 ============    ============


          LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)

Current liabilities
    Accounts payable                                             $  2,962,000    $  4,287,000
    Accrued expenses and other current liabilities                  2,086,000       2,236,000
                                                                 ------------    ------------
        Total current liabilities                                   5,048,000       6,523,000

Note payable (net of $321,000 of unamortized discount)             11,679,000              --
                                                                 ------------    ------------
                                                                   16,727,000       6,523,000
                                                                 ------------    ------------
Commitments

Redeemable preferred stock - $.01 par value; 2,000,000 shares
    authorized and 500,000 shares issued and outstanding
    (liquidation preference:  $20 per share plus accrued           10,886,000      10,285,000
    dividends)

Shareholders' equity (deficit)
    Common stock - $.01 par value; 15,000,000 shares
        authorized and 4,924,906 shares issued and
        outstanding                                                    49,000          49,000
    Additional paid-in capital                                     17,387,000      17,483,000
    Accumulated deficit                                           (32,980,000)    (17,231,000)
                                                                 ------------    ------------
                                                                  (15,544,000)        301,000
                                                                 ------------    ------------
                                                                 $ 12,069,000    $ 17,109,000
                                                                 ============    ============
</TABLE>

   The accompanying notes are an integral part of these financial statements.

                                        3
<PAGE>

                                  BLUEFLY, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                         NINE MONTHS ENDED
                                                           SEPTEMBER 30,
                                                   ----------------------------
                                                       2000            1999
                                                       ----            ----
<S>                                                <C>             <C>
Net sales                                          $ 11,100,000    $  1,909,000
Cost of sales                                         8,603,000       1,455,000
                                                   ------------    ------------
     Gross profit                                     2,497,000         454,000



Selling, marketing and fulfillment expenses          14,310,000       6,267,000
General and administrative expenses                   3,765,000       2,038,000
                                                   ------------    ------------
      Total                                         (18,075,000)     (8,305,000)

Operating loss from continuing operations           (15,578,000)     (7,851,000)

Interest (expense) income, net                         (171,000)        283,000

Loss from continuing operations                     (15,749,000)     (7,568,000)
                                                   ------------    ------------

Discontinued operations - Note 2

      Income from discontinued operations                    --          63,000
                                                   ------------    ------------

Net loss                                           $(15,749,000)   $ (7,505,000)

Preferred stock dividends                              (601,000)       (140,000)
                                                   ------------    ------------
Net loss available to common shareholders          $(16,350,000)   $ (7,645,000)
                                                   ============    ============

Basic and diluted (loss) income per common share
     Continuing operations                         $      (3.32)   $      (1.62)
     Discontinued operations                                 --             .01
                                                   ------------    ------------
           Net loss per common share               $      (3.32)   $      (1.61)
                                                   ============    ============

Weighted average common shares outstanding            4,924,906       4,763,074
                                                   ============    ============
</TABLE>

   The accompanying notes are an integral part of these financial statements.

                                        4
<PAGE>

                                  BLUEFLY, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                  (Unaudited)

<TABLE>
<CAPTION>
                                                  THREE MONTHS ENDED
                                                     SEPTEMBER 30,
                                              --------------------------
                                                  2000           1999
                                              -----------    -----------
<S>                                           <C>            <C>
Net sales                                     $ 3,215,000    $   863,000
Cost of sales                                   2,621,000        656,000
                                              -----------    -----------
     Gross profit                                 594,000        207,000

Selling, marketing and fulfillment expenses     3,889,000      2,664,000
General and administrative expenses             1,307,000      1,003,000
                                              -----------    -----------
      Total                                    (5,196,000)    (3,667,000)

Operating loss                                 (4,602,000)    (3,460,000)

Interest (expense) income, net                   (179,000)       111,000
                                              -----------    -----------

Net loss                                      $(4,781,000)   $(3,349,000)

Preferred stock dividends                        (202,000)      (140,000)
                                              -----------    -----------

Net loss available to common shareholders     $(4,983,000)   $(3,489,000)
                                              ===========    ===========

Basic and diluted loss per common share       $     (1.01)   $     (0.71)
                                              ===========    ===========

Weighted average common shares outstanding      4,924,906      4,901,749
                                              ===========    ===========
</TABLE>

   The accompanying notes are an integral part of these financial statements.

                                        5
<PAGE>

                                  BLUEFLY, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                                   NINE MONTHS ENDED
                                                                                     SEPTEMBER 30,
                                                                              ----------------------------
                                                                                  2000            1999
                                                                              ------------    ------------
<S>                                                                           <C>             <C>
Cash flows from operating activities

  Loss from continuing operations                                             $(15,749,000)   $ (7,568,000)

  Adjustments to reconcile loss from continuing operations to net cash used
     in operating activities:
     Depreciation and amortization                                                 560,000          83,000
     Common stock issued for service                                                    --           7,000
     Changes in operating assets and liabilities:
     (Increase) decrease in
          Inventories                                                             (914,000)     (4,025,000)
          Accounts receivable                                                     (505,000)       (553,000)
          Other current assets                                                     352,000          (9,000)
          Prepaid expenses                                                        (551,000)        (68,000)
          Other assets                                                             (25,000)        (22,000)
     Increase (decrease) in
          Accounts payable                                                      (1,325,000)      2,036,000
          Accrued expenses and other current liabilities                          (150,000)        479,000
                                                                              ------------    ------------
    Net cash used in operating activities - continuing operations              (18,307,000)     (9,640,000)
                                                                              ------------    ------------


  Income from discontinued operations                                                   --          63,000
  Adjustments to reconcile income from discontinued operations to net
    cash provided by operating activities:
      Changes in operating assets and liabilities:
          (Increase) decrease in
             Non-factored receivables                                                   --         187,000
          Increase (decrease) in
             Income taxes payable                                                       --         195,000
                                                                              ------------    ------------

Net cash provided by operating activities - discontinued operations                     --         445,000
                                                                              ------------    ------------
Net cash used in operating activities                                          (18,307,000)     (9,195,000)
                                                                              ------------    ------------
</TABLE>

   The accompanying notes are an integral part of these financial statements.

                                        6
<PAGE>

                                  BLUEFLY, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                               NINE MONTHS ENDED
                                                                                 SEPTEMBER 30,
                                                                         ----------------------------
                                                                             2000            1999
                                                                         ------------    ------------
<S>                                                                      <C>             <C>
Cash flows from investing activities
  Purchase of property and equipment                                         (721,000)       (478,000)
  Funds deposited with factor                                                      --       2,264,000
                                                                         ------------    ------------

Net cash (used in) provided by investing activities                          (721,000)      1,786,000
                                                                         ------------    ------------

Cash flows from financing activities - continuing operations
    Proceeds from notes payable                                            12,000,000              --
    Net proceeds from warrant redemption and unit purchase option                  --       7,067,000
    Net proceeds from option exercises                                             --         245,000
    Net proceeds from issuance of Preferred Stock                                  --       9,943,000
                                                                         ------------    ------------

Net cash provided by financing activities - continuing operations          12,000,000      17,255,000
                                                                         ------------    ------------

Cash flows from financing activities - discontinued operations
  Net change in due to/from factor                                                 --         171,000
                                                                         ------------    ------------
Net cash provided by financing activities - discontinued operations                --         171,000
                                                                         ------------    ------------

Net cash provided by financing activities                                  12,000,000      17,426,000
                                                                         ------------    ------------

Net (decrease) increase in cash                                            (7,028,000)     10,017,000
Cash balance - beginning of period                                          7,934,000       2,830,000
                                                                         ------------    ------------
Cash balance - end of period                                             $    906,000    $ 12,847,000
                                                                         ============    ============

Supplemental disclosure of cash flow information:
     Cash paid during the period for:
         Income taxes                                                    $         --    $     15,000
                                                                         ============    ============
</TABLE>

   The accompanying notes are an integral part of these financial statements.

                                        7
<PAGE>

                                  BLUEFLY, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2000

NOTE 1 - BASIS OF PRESENTATION

The accompanying consolidated financial statements include the accounts of
Bluefly, Inc. and its wholly owned subsidiary (the "Company"). All significant
intercompany balances and transactions have been eliminated in consolidation.
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-Q and Rule 3.10 of Regulation S-X. Accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the opinion
of management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. The results of
operations of any interim period are not necessarily indicative of the results
of operations to be expected for the fiscal year. For further information, refer
to the consolidated financial statements and accompanying footnotes included in
the Company's Form 10-KSB/A for the year ended December 31, 1999. There have
been no changes in significant accounting policies since December 31, 1999. The
accompanying consolidated financial statements have been prepared assuming that
the Company will continue as a going concern. The Company has sustained net
losses and negative cash flows from operations since the formation of
Bluefly.com. The Company's ability to meet its obligations in the ordinary
course of business is dependent on its ability to establish profitable
operations or raise additional financing through public or private equity
financing, collaborative or other arrangements with corporate sources, or other
sources to fund operations. Although the Company has entered into definitive
agreements relating to new financing (see Note 4 below), there can be no
assurance that such financing will be consummated, or that any additional
financing or other sources of capital will be available to the Company upon
acceptable terms, or at all. The inability to obtain additional financing, when
needed, would have a material adverse effect on the Company's business,
financial condition and results of operations.

NOTE 2 - THE COMPANY

The Company is a leading Internet retailer of designer fashions and home
accessories at outlet store prices. The Company's full service Web store
("Bluefly.com" or "Web Site") sells over 350 brands of designer apparel,
accessories and house and home products at discounts of up to 75%. Bluefly.com,
which launched in September 1998, also offers information on current fashion
trends.

In June 1998, the Company's Board of Directors voted to discontinue the
operations of its golf sportswear division and devote all of the Company's
energy and resources to building Bluefly.com.

NOTE 3 - NOTES PAYABLE

In March 2000, the Company obtained a commitment from affiliates of Soros
Private Equity Partners ("Soros") to provide, at the Company's option, up to $15
million of financing at any time during 2000 on terms reflecting market rates
for such financings at the time such financing is provided (the "Soros
Commitment"). As of September 30, 2000, Soros had provided the Company with an
aggregate of $12 million in convertible debt financing pursuant to the Soros
Commitment, in the form of notes that bear interest at a rate of 8% per annum
and are due in January 2002 (the "Soros Notes"). In October 2000, the Company
received the final $3 million of the Soros Commitment in the form of additional
Soros Notes, bringing the aggregate principal amount of the Soros Notes
outstanding to $15 million. Under the terms of the New Soros Financing (as
hereinafter defined) the Soros Notes would convert into preferred stock. See
Note 4 below. In connection with the Soros Commitment and Soros Notes, the
Company has granted Soros warrants (the "Soros Warrants") pursuant to which
Soros has the right to purchase up to 375,000 shares of Common Stock at an
exercise price equal to $2.29, exercisable at any time during the 5 years
following issuance. The Soros Warrants have been valued at $465,000 using the
Black Scholes option pricing model and, accordingly, the Company has recorded a
credit to additional paid in capital and a debt discount, which is being
amortized over the life of the debt.

NOTE 4 - NEW SOROS FINANCING

On November 13, 2000, the Company entered into an agreement with Soros pursuant
to which affiliates of Soros have agreed to invest up to an additional $15
million in the Company, subject to certain conditions (the "New Soros
Financing"). Under the terms of the agreement, Soros has invested an additional
$5 million in the form of a note (the "New Note"), convertible into preferred
stock at a price of $2.34 per share. The agreement requires the Company to offer
the public shareholders of the Company, as of a date to be determined, the right
to purchase up to an aggregate of $20 million of Common Stock at $2.34 per
share. If the public shareholders purchase less than $20 million of Common
Stock, Soros would purchase the difference between $20 million and the amount
purchased by the public shareholders, up to a total $10 million, all at the rate
of $2.34 per share. As part of the transaction, and subject to shareholder
approval, the Soros Notes (referred to in Note 3), as well as the New Note,
would be converted into preferred stock at a price of $2.34 per share, and the
conversion price of the preferred stock previously issued to

                                       8
<PAGE>

                                  BLUEFLY, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2000

Soros and other investors would be reduced to $2.34 per share. All of the
preferred stock would earn dividends at the rate of 8% per year, payable in cash
or stock, at the Company's option, upon conversion. The preferred stock issued
pursuant to the New Soros Financing would be convertible into shares of Common
Stock of the Company on a one-for-one basis.

Assuming the transaction is consummated, Soros would own a majority of the
Company's voting and equity interests. In addition, the preferred stock will
provide Soros with veto rights over certain Company actions and will allow Soros
to control any vote of the Company's board of directors.

Closing of the New Soros Financing requires approval by the shareholders of the
Company and is subject to certain other closing conditions. The New Note bears
interest at the rate of 11% until it is converted. There can be no assurance
that the shareholders will approve the New Soros Financing or that the New Soros
Financing will be consummated. If it is not consummated, the Soros Notes and the
New Note are due and payable on May 1, 2001.

NOTE 5 - EARNINGS (LOSS) PER SHARE

The Company has determined Earnings (Loss) Per Share in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
Share." Basic earnings (loss) per share excludes dilution and is computed by
dividing earnings (loss) available to common shareholders by the weighted
average number of common shares outstanding for the period.

Diluted earnings (loss) per share is computed by dividing earnings (loss)
available to common shareholders by the weighted average number of common shares
outstanding for the period, adjusted to reflect potentially dilutive securities.
Due to the loss from continuing operations, options and warrants to purchase
2,677,481 shares of Common Stock and Preferred Stock convertible into 952,381
shares of Common Stock were not included in the computation of diluted earnings
per share because the result of the exercise of such would be antidilutive.

NOTE 6 - RECLASSIFICATIONS

Certain amounts in the consolidated financial statements of the prior period
have been reclassified to conform to the current period presentation for
comparative purposes.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

OVERVIEW

The Company is a leading Internet retailer of designer fashions and home
furnishings at outlet store prices. The Company offers an extensive selection of
designer products from over 350 brands.

The Company derives revenue primarily from the sale of designer products on its
Web Site. Revenue is recognized when goods are shipped to the Company's
customers, which occurs only after credit card authorization. The Company
processes merchandise returns and bears the credit risk for these transactions.
The Company generally permits returns for any reason within 90 days of the sale.
Accordingly, the Company reserves for estimated future returns and bad debt at
the time of shipment based on historical data. However, the Company's future
return and bad debt rates could differ significantly from historical patterns.

The Company has incurred substantial costs to develop its Web Site and
infrastructure. In order to expand its business, the Company intends to invest
in sales, marketing, merchandising, operations, information systems, site
development and additional personnel to support these activities. The Company,
therefore, expects to continue to incur substantial operating losses for the
foreseeable future.

The Company's quarterly net sales increased to $3,215,000 for the third quarter
of 2000, an increase of over 273% compared to net sales during the third quarter
of 1999 of $863,000. In addition, average order size increased to $100.86 from
$95.83 for the same period in the prior year.

According to Media Metrix data, Bluefly.com had approximately 376,000 average
monthly unique visitors during the third quarter of 2000, approximately 39%
higher than the 271,000 average monthly unique visitors attracted during the
third quarter of 1999. During the quarter, the Company added approximately
24,500 new customers, a 164% increase over the 9,280 customers added in the
third

                                       9
<PAGE>

                                  BLUEFLY, INC.
                               SEPTEMBER 30, 2000

quarter of 1999. Repeat customers accounted for approximately 51% of the
Company's revenues, up from 35% in the third quarter of 1999.

Gross revenue per unique visitor was $4.01 for the third quarter, 167% higher
than the $1.50 gross revenue per unique visitor generated in the third quarter
of 1999. Customer acquisition costs (which the Company defines as total
advertising expenditures during the quarter (excluding staff related costs)
divided by new customers acquired in the quarter) improved 68% to $57.45 per new
customer during the third quarter of 2000 from $178.66 per new customer
acquisition cost during the third quarter of 1999.

In order to accommodate increased inventory levels and higher volumes of order
fulfillment, the Company moved to a larger, more robust fulfillment center. The
new facility has over four times the amount of square footage available than in
the old facility. The Company completed the move in early October 2000.

Bluefly.com was launched in September 1998. In June 1998, prior to the launch of
Bluefly.com, the Company discontinued its Pivot Rules division, which marketed a
collection of golf sportswear in order to devote all of its resources to
building Bluefly.com.

RESULTS OF OPERATIONS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1999

NET SALES: For the nine months ended September 30, 2000, gross sales (revenue
from product sales before any adjustment for reserves) totaled $15,411,000. The
Company recorded a provision for returns and credit card chargebacks and other
discounts of $4,311,000, or approximately 28% of gross sales. The reserve
allowance takes into account the Company's 90-day return policy and actual
experience to date, which may vary over time. After the necessary provisions for
returns, credit card chargebacks and adjustments for uncollected sales taxes,
the Company's net sales for the nine months ended September 30, 2000 were
$11,100,000. This represents an increase of over 481% compared to net sales for
the same period in 1999, in which net sales totaled $1,909,000.

COST OF SALES: Cost of sales for the nine months ended September 30, 2000
totaled $8,603,000, resulting in gross margin of approximately 22.5%. Cost of
sales consists of the cost of product sold to customers, in-bound shipping
costs, inventory reserves, commissions and packing materials. Cost of sales for
the nine months ended September 30, 1999 were $1,455,000, resulting in gross
margin of 23.8%. The Company believes that the decrease in gross margin resulted
from the reduction of sales price of certain items that the Company sought to
(i) sell before its move to its new fulfillment center, as well as (ii) convert
into cash needed for holiday buys. This decrease in margin was partially offset
by revenue generated from certain promotional programs that were not in place in
1999.

SELLING, MARKETING AND FULFILLMENT EXPENSES: Selling, marketing and fulfillment
expenses totaled $14,310,000 for the nine months ended September 30, 2000,
representing costs associated with online strategic marketing relationships,
print advertising, Web Site hosting, inventory management, fulfillment costs,
outbound shipping costs (net of shipping revenue), and customer service. Of the
total selling, marketing and fulfillment expenses for the nine months ended
September 30, 2000, marketing expenses related to online and print advertising
totaled approximately $7,397,000 while Web site hosting costs totaled
approximately $1,593,000. Approximately $1,280,000 of the total relates to
fulfillment costs, and approximately $426,000 represents outbound shipping costs
(net of shipping revenue). Selling, marketing and fulfillment expenses for the
same period in 1999 were approximately $6,267,000. Of the total selling,
marketing and fulfillment expenses for the nine months ended September 30, 1999,
marketing expenses related to online and print advertising totaled approximately
$3,824,000 while Web site hosting costs totaled approximately $243,000.
Approximately $290,000 of the total related to fulfillment costs, and
approximately $105,000 represents outbound shipping costs (net of shipping
revenue).

The increase in fulfillment costs and outbound shipping costs in this period
compared to the same period in 1999, is largely attributable to increased sales
volume as well as the move to the new fulfillment center as there was some
overlap in costs during the month of August due to the Company's need to
maintain the old fulfillment center as the new fulfillment center was commencing
operations. The increase in Web site hosting costs results from the Company's
efforts to improve the speed of its Web site and effectively handle growth in
traffic to the Web site. Marketing expenses related to online and print
advertising as a percentage of total selling, marketing and fulfillment
expenses, decreased for the nine month period ended September 30, 2000 by
approximately 9% as compared to the same period in 1999.

GENERAL AND ADMINISTRATIVE EXPENSES: General and administrative expenses were
$3,765,000 for the nine months ended September 30, 2000 compared to $2,038,000
for the same period in 1999. General and administrative expenses include
salaries and related expenses, insurance costs, accounting and legal fees,
depreciation and other office related expenses. The increase in general and
administrative expenses in this period, as compared to 1999, was largely the
result of an increase in employees, and their related benefits as well as
increased professional fees. The Company has increased its head count across all
departments. The average number of employees

                                       10
<PAGE>


                                  BLUEFLY, INC.
                               SEPTEMBER 30, 2000

employed by the Company for the nine month period ended September 30, 1999 was
30, compared to the average number of employees employed by the Company for the
nine month period ended September 30, 2000 of 85.

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THE THREE MONTHS ENDED
SEPTEMBER 30, 1999

NET SALES: For the three months ended September 30, 2000, gross sales (revenue
from product sales before any adjustment for reserves) totaled $4,546,000. The
Company recorded a provision for returns and credit card chargebacks and other
discounts of $1,331,000, or approximately 29% of gross sales. The reserve
allowance takes into account the Company's 90-day return policy and actual
experience to date, which may vary over time. After the necessary provisions for
returns, credit card chargebacks and adjustments for uncollected sales taxes,
the Company's net sales for the third quarter of 2000 were $3,215,000. This
represents an increase of over 272% compared to net sales for the three month
period ended September 30, 1999, in which net sales totaled $863,000.

COST OF SALES: Cost of sales for the three months ended September 30, 2000
totaled $2,621,000, resulting in gross margin of approximately 18.5%. Cost of
sales consists of the cost of product sold to customers, in-bound shipping
costs, inventory reserves and packing materials. Cost of sales for the three
months ended September 30, 1999 were $656,000, resulting in gross margin of
approximately 24%. The Company believes that the decrease in gross margin
resulted from the reduction of sales price of certain items that the Company
sought to (i) sell before its move to its new fulfillment center as well as (ii)
convert into cash needed for holiday buys. This decrease in margin was partially
offset by revenue generated from certain promotional programs that were not in
place in 1999.

SELLING, MARKETING AND FULFILLMENT EXPENSES: Selling, marketing and fulfillment
expenses totaled $3,889,000 for the three months ended September 30, 2000,
representing costs associated with online strategic marketing relationships,
print advertising, Web Site hosting, inventory management, fulfillment costs,
outbound shipping costs (net of shipping revenue), and customer service. Of the
total selling, marketing and fulfillment costs for the three months ended
September 30, 2000, marketing expenses related to online and print advertising
totaled approximately $1,407,000, while fulfillment expenses totaled
approximately $589,000. The costs of outbound shipping net of the related
shipping revenue totaled $34,000. Selling, marketing and fulfillment expenses
for the same period in 1999 were approximately $2,664,000. Marketing expenses
related to online and print advertising for the three months ended September 30,
1999 were approximately $1,657,000. Fulfillment expenses for the three months
ended September 30, 1999 totaled approximately $163,000 while the costs of
outbound shipping net of the related shipping revenue totaled $81,000.

The increase in fulfillment costs in this period, compared to 1999, is largely
attributable to increased sales volume as well as the move to the new
fulfillment center as there was some overlap in costs during the month of
August due to the Company's need to maintain the old fulfillment center as the
new fulfillment center was commencing operations. Outbound shipping costs (net
of the related revenue) decreased compared to the prior period as the Company
raised its shipping fee during July, from $3.95 to $5.95. The increased revenue
served to offset the overall shipping costs. The increase in Web site hosting
costs results from the Company's efforts to improve the speed of its Web site
and effectively handle the growth in traffic to the Web site. Marketing expenses
related to online and print advertising as a percentage of total selling,
marketing and fulfillment expenses, decreased for the three month period ended
September 30, 2000 by approximately 26% as compared to the same period in 1999.

GENERAL AND ADMINISTRATIVE EXPENSES: General and administrative expenses were
$1,307,000 for the three months ended September 30, 2000 compared to $1,003,000
for the same period in 1999. General and administrative expenses include
salaries and related expenses, insurance costs, accounting and legal fees,
depreciation and other office related expenses. The increase in general and
administrative expenses in the third quarter 2000, as compared to 1999, was
largely the result of an increase in employees and their related benefits as
well as increased professional fees. The Company has increased its head count
across all departments, growing the Company from 56 employees as of September
30, 1999 to 88 as of September 30, 2000.

LIQUIDITY AND CAPITAL RESOURCES

At September 30, 2000, the Company had approximately $5.58 million of working
capital, of which approximately $900,000 was in the form of cash. As of
September 30, 2000, the Company had $3.0 million of cash available under the
Soros Commitment described below. In October 2000, the Company drew down on the
remaining $3.0 million under the Soros Commitment.


In March 2000, the Company obtained a commitment from affiliates of Soros
Private Equity Partners ("Soros") to provide, at the Company's option, up to $15
million of financing at any time during 2000 on terms reflecting market rates
for such financings at the time such financing is provided (the "Soros
Commitment"). As of September 30, 2000, Soros had provided the Company with an
aggregate of $12 million in debt financing pursuant to the Soros Commitment, in
the form of notes that bear interest at a rate of 8% per annum and are due in
January 2002 (the "Soros Notes"). In October 2000, the Company received the
final $3.0 million under the Soros Commitment in the form of additional Soros
Notes, bringing the aggregate principal amount of Soros Notes to $15 million.
Under the terms of the New Soros Financing (as hereinafter defined), the Soros
Notes would convert into preferred stock. See discussion below. In connection
with the


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<PAGE>

                                  BLUEFLY, INC.
                               SEPTEMBER 30, 2000

Soros Commitment and Soros Notes, the Company has granted Soros warrants (the
"Soros Warrants") pursuant to which Soros has the right to purchase up to
375,000 shares of Common Stock at an exercise price equal to $2.29, exercisable
at any time during the 5 years following issuance. The Soros Warrants have been
valued at $465,000 using the Black Scholes option pricing model and,
accordingly, the Company has recorded a credit to additional paid in capital and
a debt discount, that is being amortized over the life of the debt.

On November 13, 2000, the Company entered into an agreement with Soros pursuant
to which affiliates of Soros have agreed to invest up to an additional $15
million in the Company, subject to certain conditions (the "New Soros
Financing"). Under the terms of the agreement, Soros has invested an additional
$5 million in the form of a note (the "New Note"), convertible into preferred
stock at a price of $2.34 per share. The agreement requires the Company to offer
the public shareholders of the Company, as of a date to be determined, the right
to purchase up to an aggregate of $20 million of Common Stock at $2.34 per
share. If the public shareholders purchase less than $20 million of Common
Stock, Soros would purchase the difference between $20 million and the amount
purchased by the public shareholders, up to a total $10 million, all at the rate
of $2.34 per share. As part of the transaction, and subject to shareholder
approval, the Soros Notes, as well as the New Note, would be converted into
preferred stock at a price of $2.34 per share, and the conversion price of the
preferred stock previously issued to Soros and other investors would be reduced
to $2.34 per share. All of the preferred stock would earn dividends at the rate
of 8% per year, payable in cash or stock, at the company's option, upon
conversion. The preferred stock issued pursuant to the New Soros Financing would
be convertible into shares of Common Stock of the Company on a one-for-one
basis.

Assuming the transaction is consummated, Soros would own a majority of the
Company's voting and equity interests. In addition, the preferred stock will
provide Soros with veto rights over certain company actions and will allow Soros
to control any vote of the Company's board of directors.

Closing of the New Soros Financing requires approval by the shareholders of the
Company and is subject to certain other closing conditions. The New Note bears
interest at the rate of 11% until it is converted. There can be no assurance
that the shareholders will approve the New Soros Financing or that the New Soros
Financing will be consummated. If it is not consummated, the Soros Notes and the
New Note are due and payable on May 1, 2001.

In June 2000, the Company was advised by the Nasdaq Stock Market, Inc.
("Nasdaq") and the Boston Stock Exchange, that it is not in compliance with
their respective continued listing requirements (the "Listing Requirements")
because of its failure to satisfy Nasdaq's minimum net tangible assets
requirement and the Boston Stock Exchange's minimum shareholders' equity
requirement. The Company believes that the consummation of the New Soros
Financing would allow it to re-attain compliance with the Listing Requirements.
However, there can be no assurances that the New Soros Financing will be
consummated or that Nasdaq or the Boston Stock Exchange will allow the Company
to remain listed until the consummation of the New Soros Financing.

As of September 30, 2000, the Company has marketing and advertising commitments
of approximately $1.2 million through December 31, 2000. In addition, the
Company believes that in order to grow the business, the Company will need to
make additional marketing and advertising commitments in the future. However,
the Company's marketing budget is subject to a number of factors, including its
results of operations as well as its ability to raise additional capital.

In order to continue to expand its product offerings, the Company intends to
expand its relationships with suppliers of end-of-season and excess name brand
apparel and fashion accessories. The Company expects that its suppliers will
continue to include designers and retail stores that sell excess inventory as
well as third party end-of-season apparel aggregators. To achieve its goal of
offering a wide selection of top name brand designer clothing and fashion
accessories, the Company may acquire certain goods on consignment and may
explore leasing or partnering select departments with strategic partners and
distributors. Due to the Company's limited working capital, a number of its
suppliers have limited the Company's payment terms and, in some cases, have
required the Company to pay for merchandise in advance of delivery.

The Company expects to hire and train additional employees for the operations
and development of Bluefly.com. However, the Company's ability to hire such
employees is subject to a number of factors, including the Company's results of
operations as well as the Company's ability to raise additional capital.

The Company anticipates that the proceeds from the Soros Notes, the initial $5
million of the New Soros Financing, together with existing resources and cash
generated from operations, should be sufficient to satisfy the Company's current
cash requirements through the first quarter of 2001. However, the Company
intends to seek additional debt and/or equity financing in order to maximize the
growth of its business. The Company is exploring a secured inventory line of
credit. There can be no assurance that any additional financing or other sources
of capital will be available to the Company upon acceptable terms, or at all.
The inability to obtain additional financing, when needed, would have a material
adverse effect on the Company's business, financial condition and results of
operations.

                                       12
<PAGE>

                                  BLUEFLY, INC.
                               SEPTEMBER 30, 2000

RECENT ACCOUNTING PRONOUNCEMENTS

In December 1999, the Commission issued Staff Accounting Bulletin No. 101,
"Revenue Recognition in Financial Statements" ("SAB 101"). SAB 101 summarizes
certain of the Commission's views in applying generally accepted accounting
principles to revenue recognition in financial statements. SAB 101 is not a rule
or interpretation of the Commission; however, it represents interpretations and
practices followed by the Division of Corporate Finance and Office of the Chief
Accountant in administering the disclosure requirements of the Federal
securities laws.

The Emerging Issues Task Force ("EITF") of the Financial Accounting Standards
Board has addressed the "Accounting Treatment for Shipping and Handling Revenue
and Costs" in Issue 00-10. During its meetings it has reached a final consensus
that amounts billed, if any, for shipping and handling should be included in
revenue. However the EITF did not reach a conclusion on the treatment of the
related costs of shipping and handling.

According to SAB 101B, the implementation date for Issue 00-10, is the fourth
quarter of a registrant's fiscal year beginning after December 15, 1999 and
requires companies to reclassify all prior periods to conform with the current
period presentation. The Company will apply the interpretations outlined in SAB
101, and EITF Issue 00-10, in the fourth quarter of 2000, and will retroactively
reclassify shipping and handling revenues to conform with the new required
presentation.

SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS

This report may include statements that constitute "forward-looking" statements,
usually containing the words "believe", "project", "expect", or similar
expressions. These statements are made pursuant to the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995. Forward-looking statements
inherently involve risks and uncertainties that could cause actual results to
differ materially from the forward-looking statements. The risks and
uncertainties are detailed from time to time in reports filed by the company
with the Securities and Exchange Commission, including Forms 8-A, 8-K, 10-QSB,
and 10-KSB. These risks and uncertainties include, but are not limited to, the
following: the Company's limited working capital, need for additional capital
and potential inability to raise such capital; the competitive nature of the
business and the potential for competitors with greater resources to enter such
business; risks of litigation for sale of unauthentic or damaged goods and
litigation risks related to sales in foreign countries; consumer acceptance of
the Internet as a medium for purchasing apparel; recent losses and anticipated
future losses; potential adverse effects on gross margin resulting from mark
downs and allowances; the capital intensive nature of such business (taking into
account the need for advertising to promote such business); the dependence on
third parties and certain relationships for certain services, including
uncertainty arising from a lack of operating history with the company's new
fulfillment center; the successful hiring and retaining of personnel; the
dependence on continued growth of online commerce; rapid technological change;
online commerce security risks; the startup nature of the Internet business;
governmental regulation and legal uncertainties; management of potential growth;
and unexpected changes in fashion trends.

PART II  - OTHER INFORMATION

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

In connection with the Soros Commitment and the Soros Notes, the Company has
granted Soros warrants to purchase an aggregate of 375,000 shares of Common
Stock. The Soros Warrants have an exercise price of $2.29 and are exercisable
for a period of five years from issuance. The Company has granted warrants to
purchase 50,000 shares of Common Stock (the "Supplier Warrants") to a supplier
in return for an agreement that provides the Company with preferred pricing of,
and access to, the supplier's product. The Supplier Warrants have an exercise
price of $3.72 per share and are exercisable for a period of five years. The
issuance of the Soros Warrants and the Supplier Warrants were deemed to be
exempt from registration under the Securities Act of 1933, as amended (the
"Act") in reliance on Section 4(2) of the Act as a transaction by an issuer not
involving any public offering. The holder thereon represented their intentions
to acquire the securities for investment only and not with a view to any
distribution thereof and appropriate legends were fixed to the Soros Warrants
and the Supplier Warrants in connection therewith. The proceeds of the Soros
Notes are being used for working capital purposes.

                                       13
<PAGE>

                                  BLUEFLY, INC.
                               SEPTEMBER 30, 2000

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(a) The following is a list of exhibits filed as part of this Report:

EXHIBIT NO.   DESCRIPTION
-----------   -----------

   +10.19     Service Agreement by and between the Company and Distribution
              Associates, Inc. dated July 27, 2000

    10.20     Note and Warrant Purchase Agreement, dated August 21, 2000, by and
              among the Company, Quantum Industrial Partners LDC and SFM
              Domestic Investments LLC

    10.21     Note and Warrant Purchase Agreement, dated October 2, 2000, by and
              among the Company, Quantum Industrial Partners LDC and SFM
              Domestic Investments LLC

    10.22     Letter Agreement, dated as of October 12, 2000, by and between the
              Company and Soros Private Equity Partners, LLC (incorporated by
              reference to the Company's Report on Form 8-K dated October 17,
              2000)

    10.23     Investment Agreement, dated as of November 13, 2000, by and
              among the Company, Newco, Quantum Industrial Partners LDC and
              SFM Domestic Investments LLC

    27        Financial Data Schedule.


+  Confidential treatment requested as to certain portions of this Exhibit.
   Such portions have been redacted.

(b) Reports on Form 8-K:

On October 17, 2000 the Company filed a Form 8-K under Item 5 announcing that it
had entered into a non-binding letter of intent with Soros Private Equity
Partners relating to a proposed investment in the Company by affiliates of Soros
Private Equity Partners.

                                       14
<PAGE>

                                  BLUEFLY, INC.
                               SEPTEMBER 30, 2000

                                   SIGNATURES

In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.


                                            BLUEFLY, INC.


                                            By: /s/ E. Kenneth Seiff
                                                -----------------------------
                                                E. Kenneth Seiff
                                                President


                                            By: /s/ Patrick C. Barry
                                                -----------------------------
                                                Patrick C. Barry
                                                Chief Financial Officer

November 14, 2000

                                       15